Which is better- the old or the new tax regime? Therefore, The Budget 2023 for the current financial year brought a major change for the assessee by introducing the new tax regime as voluntary compliance for all taxpayers.
However,
Although a private individual can choose to switch to the old tax regime if he/she wishes. In other words, There are advantages and disadvantages to both the old tax regime and the new tax regime, but it can be confusing for taxpayers to choose the most appropriate regime for themselves. Let us examine the various aspects to be considered in the old tax regime and the new tax regime in F.Y 2023-24.
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Under the new tax regime
For instance, The new tax regime has increased the range of tax rates from 0% to 30% with a minimum exemption of up to Rs 3 lakhs and a maximum tax rate of 30% applicable from Rs.15 lakhs. The new income tax rates are listed below:
INCOME TAX SLAB RATES IN THE NEW TAX REGIME 2023-24
ANNUAL INCOME | NEW TAX REGIME |
0-3 Lakhs | Nil |
3-6 Lakhs | 5% |
6-9 Lakhs | 10% |
9-12 Lakhs | 15% |
12-15 Lakhs | 20% |
Above 15 Lakhs | 30% |
In addition, Highlights of the New Tax Regime 2023-24
1. The new tax regime is voluntary compliance for the year 2023-24.
2. A person earning Rs. 7 without annual entitlement to abatement.
3. Higher rate of surcharge on income above Rs. 5 crores reduced from 37% to 25%.
4. In order to simplify complicated paperwork and reduce the burden of compliance and administration on the taxpayer and tax authorities regarding tax deductions and exemptions, fewer deductions were made.
5. Some tax deductions not allowed under the new tax regime are available
A. Waiver of Travel Allowance
B. Rental Assistance
C. Educational Assistance for Children
D. Exemption for employment taxes
E. Interest on home loans
F. Deduction for specified
6. No stringent rules and regulations for your investments under the new tax regime.
After that,
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Similarly, Comparison between the old tax regime and new tax regime
As announced in the 2023-24 investment budget, the new tax regime has been imposed by default, but still, an individual can choose between the old tax regime and the new tax regime if he/she wishes. If you want to claim deductions and exemptions, the old tax regime is more favorable, otherwise, the new tax regime has multiple levels of income brackets and rates.
However, The key point to understand here is which tax regime allows you to take home more money.
For instance, Let us take an example to understand the situation in both lights, Mr. Suresh earns Rs. 50,00,000 per annum. Above all, He is claiming a deduction under section 80C against LIC and EPF for Rs. 1,50,0 He has taken out health insurance for which he pays a premium of Rs 25,000 which he claims as tax deductible under section 80 D. He also claims a tax-free traveling allowance of Rs.38,000 and rent allowance of Rs. 1,60,0 Let’s calculate the tax due in both cases.
In other words,
Understand with the help of illustration 1 of New and old tax regimes for taxpayers:-
Illustration | Old Tax Regime | New Tax Regime |
Income From Salary | 50,00,000 | 50,00,000 |
Less:- Exemptions House Rent Allowance Leave Travel Allowance |
(1,60,000) (38,000) |
Not Allowed Not Allowed |
Gross Total Income | 48,02,000 | 50,00,000 |
Less:- Standard Deduction | (50,000) | (50,000) |
Less Deduction U/s Chapter VI-A (EPF +LIC+ Tuition Fees, etc) |
(1,50,000) | Not Allowed |
Less:- Deduction U/s 80D If Senior Citizen -Rs 50000 otherwise Rs. 25000 Maximum Allowed. |
(25,000) | Not Allowed |
Less:- Other Deduction If any | Allowed | Not Allowed |
Net Taxable Income | 45,77,000 | 49,50,000 |
Note: – Assume that the taxpayer is less than 60 years of age.
Therefore,
B. Total taxes payable under the new and old tax regimes
Tax Calculation Slab | Old Tax Regime Rates | Tax (Old) Amount | Tax Calculation Slab | New Tax Regime Rates | Tax (New) Amount |
0 – 2,50,000 | 0% | Nil | 0 – 3,00,000 | Nil | Nil |
2,50,000 – 5,00,000 | 5% | 12,500 | 3,00,000 – 6,00,000 | 5% | 15,000 |
5,00,000 -10,00,000 | 20% | 1,00,000 | 6,00,000 – 9,00,000 | 10% | 30,000 |
Above 10,00,000 | 30% | 10,73,100 | 9,00,000 – 12,00,000 | 15% | 45,000 |
12,00,000-15,00,000 | 20% | 60,000 | |||
Above 15,00,000 | 30% | 10,35,000 | |||
Total Tax | 11,85,600 | Total Tax | 11,85,000 | ||
Add: Higher Education Cess @4% | 47,424 | Add: Higher Education Cess @4% | 47,400 | ||
Total Tax payable | 12,33,024 | Total Tax payable | 12,32,400 |
In conclusion,
As the example above shows, people take home more money under the new tax system, but the situation will be different if the amount of additional payments and deductions are higher. It is therefore advisable to calculate your tax due under both regimes.
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